Japanese business

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Japan’s government is trying to attract business investment. Really

WHEN the Japanese government revealed a hefty “new growth strategy” in June, the response was sceptical. Yomiuri Shimbun, the country's biggest newspaper, relished reporting the “21 key national strategy projects” and “about 330 policy items” up for change. They ranged from promoting clean energy and overseas infrastructure projects to attracting medical tourists and foreign firms.

Since then the ruling Democratic Party of Japan has continued to falter. The popularity of the prime minister, Naoto Kan, has sunk as low as 21%, curtailing his ability to push reforms. And the government has placed the most controversial ideas on hold, at least publicly. Yet substantial changes are quietly taking place, a few of which have already borne fruit.

The most prominent change is in tax policy. Politicians have talked for years about lowering the corporate tax rate, at 40% the highest in the rich world. Companies argue they cannot compete against rivals in countries like South Korea, where the tax is just 24%. Last month Mr Kan promised to slash five percentage points off the tax in the 2011 budget, which goes before parliament in March.

To encourage overseas companies to set up regional headquarters and research facilities, the trade ministry is also proposing to lower the combined national and local tax on foreign firms to between 20% and 29% for five years. Long accused of giving subtle, preferential treatment to domestic players, Japan is poised to discriminate openly in favour of foreigners.

The government has stepped up its economic diplomacy, too. Having lost two large nuclear-power contracts in 2009 and 2010 to Russian and South Korean bidders with strong government backing, Japan has put its politicians on the road. This month ministers have hawked high-speed trains in Florida and touted a water-treatment facility in Riyadh. A state-backed lender, the Japan Bank for International Co-operation (JBIC), has opened the financing spigot. Such efforts seem to be paying off. Vietnam has said it will turn to Japanese technology for the second phase of its nuclear programme, which is worth about ¥1 trillion ($12 billion). Turkey, heavily lobbied by Japan, is in talks to conclude a nuclear-power contract that had been expected to go to South Korea.

As an aged, technologically advanced country, Japan ought to be a global leader in medical care. On January 7th the government established a department within the Cabinet Office to enhance the competitiveness of Japan's medical business, including research, devices and drugs. It has also created a new six-month medical visa for foreigners and their caregivers that is designed to draw health tourists.

Overall, the government wants to create 5m new jobs by 2020, rake in ¥118 trillion, and bump GDP growth up to more than 3% from its long-term average of 1%. That appears unrealistic. Even after cuts, Japan's corporate taxes are still far higher than in other countries. And it is not clear that the government will have the clout to push through the toughest initiatives, such as joining a regional free-trade agreement.

Still, the fact that some action has taken place counts as a positive sign. It marks a remarkable maturation for the DPJ, which strode into office 16 months ago clutching a sheaf of anti-business policies such as reversing the privatisation of the post office (the world's biggest bank by deposits), creating a three-year debt moratorium for small firms and introducing unwieldy targets for carbon-emission reduction. But crisis eventually concentrates minds.